The Most Important Stressors Impacting Chile’s Trajectory

The Republic of Chile is one of the most successful countries in Latin America, and the only one that achieved OECD membership. Though small in size and still shaken by a not so recent history of violence Chile has achieved impressive growth rates and has carved out a very special spot for itself in Latin America. Key initiatives taken up by all governments since the return to democracy in 1989, have been the diversification of the economy and the reduction of economic inequality. The latter theme has been translated into policy by the current government coalition ‘Nueva Mayoría’, led by socialist Michelle Bachelet, after popular pressure rocked the streets of Chile’s main politico-economic centres and the preceding government of conservative Sebastián Piñera.

The reforms have propelled Chile into a transitional phase. They aim to dismantle the current education system and replace it with a public accessible one, offering quality education. In addition to enact those reforms the government faces an economic downturn, with sharply declining growth rates. The next five years will therefore be decisive for the position the country occupies in the future. By identifying and analysing stressors it becomes possible to sketch out this position and protect current investments as well as point to likely upcoming opportunities.
The stressors that put most pressure on the country within the five-year time-frame can be grouped into Social, Economic, and Security. Check back regularly, as they will be explained in successive posts.

If you think they are of interest for your business (in Chile or elsewhere) please don’t hesitate to contact us. We are able to place them into the context of your operations, and deduce recommendations valuable to future business.

Social

Halfway into the Piñera administration in 2012 protests erupted to demand better and education which is free at point of use. The protests were initially carried by students that are of the post-1990 generation and did not live through the repressive period of the Pinochet era. Consequently, demands were articulated and pushed much more forcefully than hitherto, and surpassed anything the then-president was willing to concede. Faced with a non-responsive government demonstrations gathered steam and an explosive melange of protester radicalisation and police brutality developed, which spread to cities as far south as Concepción. This was the beginning of social movements.

Social movements

Today there are various social movements in Chile. They range from the students, to LGBT rights, various unions to pensioners and cyclists. The most important one arguably the students movement, but it is incidentally also the one that became significantly less active since the inception of the Nueva Mayoría. The reason for this is that major figures, like Camila Vallejo or Gabriel Boric, have been absorbed into the parliamentary system. Furthermore, one of the founding blocks of Ms. Bachelet’s government – and the single most important reason for her landslide – is the enacting of the education reform the student movement demands.
Integration has not gone smoothly. There is still rupture between the student MP’s and the President. Demonstrations are also likely to happen in order to demand speedier reforms and closer streamlining to initial demands. In addition, due to the depth of the reform and the social structures that govern Chile, members of the newly emerged upper-middle class are going to pay substantially more than hitherto without having a genuine choice to put their children in to public schools because they are still not able to provide adequate education. Thus, demonstrations already occurred and new movements are likely to form in opposition to the reform.

In general, there are minor protests almost every month but none reached nor is likely to reach, the proportions of the education protests in the last three years. Social movements are an expression of a break of the post-1990 generation with their parents’ which was more submissive.

Investors should take note of social movements in order to discern which kind of demands circulate within the Chilean population, which gives rise to possible new laws and regulations, likelihood of social unrest, and consumer desires.

The Education System

The education system is a key component of society connecting political, economic and social realms. The former one gave rise to large-scale protests and is the source of much private debt, as well as social polarization and inefficiency in the workplace. With the new reforms it is hoped to achieve excellent public education and parity between social classes. The new system is based on the Norwegian one, which is promising indeed. Still, at this stage it is likely to undergo significant changes. The reform is one of a generation, so children which were born only five years ago will benefit much less than those who will enter the system in five years into the future (compulsory education starts at age six). As such, there is much room for tweaking the reforms, especially if it turns out in the course of the next 10 years that public schools can’t match the quality of private ones. Given the time-scale of the reform it is very likely that education will not look like it is intended today.
On the other hand, Chilean education is generally on the rise, even though it is still far worse than in the US or Europe. Thus, it is certain that employers will work more efficient and constant rises in productivity are expected.

Key for businesses is to take not of where education stands. This will determine how much they will have to invest in training of the workforce, the type of business they can set up in the country, and how productive this business is likely to be, i.e. how much return on investment can be exepected.